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Economics A-Level > Theme 1 Definitions > Flashcards

Theme 1 Definitions Flashcards

1
Q

Ad Valorem Tax

A

An indirect tax imposed on a good where the value of the tax is dependent on the value of the good

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2
Q

Asymmetric Information

A

Where one party has more information than the other, leading to market failure

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3
Q

Capital Goods

A

Goods produced in order to aid production of consumer goods in the future

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4
Q

Ceteris Paribus

A

All other things remaining the same

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5
Q

Command Economy

A

All factors of production are allocated by the state, so they decide what, how and for whom to produce goods

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6
Q

Complementary Goods

A

Negative XED; if good B becomes more expensive, demand for good A falls

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7
Q

Consumer Surplus

A

The difference between the price the consumer is willing to pay and the price they actually pay

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8
Q

Cross Elasticity of Demand (XED)

A

The responsiveness of demand for one good (A) to a change in price of another good (B)
%change in QD of A divided by
%change in P of B

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9
Q

Diminishing Marginal Utility

A

The extra benefit gained from consumption of a good generally declines as extra units are consumed

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10
Q

Division of Labour

A

When labour becomes specialised during the production process so do a specific task in cooperation with other workers

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11
Q

Economic Problem

A

The problem of scarcity; wants are unlimited but resources are finite so choices have to be made

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12
Q

Efficiency

A

When resources are allocated optimally, so every consumer benefits and waste is minimised

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13
Q

Equilibrium

A

Where demand equals supply so there are no more market forces bringing about change to price or quantity demanded

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14
Q

Externalities

A

The cost or benefit a third party receives from an economic transaction outside of the market mechanism

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15
Q

External Cost/Benefit

A

The cost/benefit to a third party not involved in the economic activity; the difference between social cost/benefit and private cost/benefit

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16
Q

Free Market Economy

A

An economy where the market mechanism allocates resources so consumers and producers make decisions about what is produced, how to produce and for whom

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17
Q

Free Rider Principle

A

People who do not pay for a public good still receive benefits from it so the private sector will under-provide the good as they cannot make a profit

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18
Q

Government Failure

A

When government intervention leads to a net welfare loss in society

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19
Q

Habitual Behaviour

A

A cause of irrational behaviour; when consumers are in the habit of making certain decisions

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20
Q

Incidence of Tax

A

The tax burden on the taxpayer

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21
Q

Income Elasticity of Demand (YED)

A

The responsiveness of demand to a change in income
%change in QD divided by
%change in Y

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22
Q

Indirect Tax

A

Taxes on expenditure which increase production costs and lead to a fall in supply

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23
Q

Inferior Goods

A

YED<0; goods which see a fall in demand as income increases

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24
Q

Information Gap

A

When an economic agent lacks the information needed to make a rational, informed decision

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25
Q

Information Provision

A

When the government intervenes to provide information to correct market failure

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26
Q

Luxury Goods

A

YED>1; an increase in incomes causes an even bigger increase in demand

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27
Q

Market Failure

A

When the free market fails to allocate resources to the best interest of society, so there is an inefficient allocation of scarce resources

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28
Q

Market Forces

A

Forces in free markets which act to reduce prices when there is excess supply and increase them when there is excess demand

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29
Q

Maximum Price

A

A ceiling price which a firm cannot charge above

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30
Q

Minimum Price

A

A floor price which a firm cannot charge below

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31
Q

Mixed Economy

A

Both the free market mechanism and the government allocate resources

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32
Q

Negative Externalities of Production

A

Where the social costs of producing a good are greater than the private costs of producing the good

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33
Q

Non-Excludable

A

A characteristic of public goods; someone cannot be prevented from using the good

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34
Q

Non-Renewable Resources

A

Resources which cannot be readily replenished or replaced at a level equal to consumption; the stock level decreases over time as they are consumed

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35
Q

Non-Rivalry

A

A characteristic of public goods; one person’s use of the good does not prevent someone else from using it

36
Q

Normal Goods

A

YED>0; demand increases as income increases

37
Q

Normative Statement

A

Subjective statements based on value judgements and opinions; cannot be proven or disproven

38
Q

Opportunity Cost

A

The value of the next best alternative forgone

39
Q

Perfectly Price Elastic Good

A

PED/PES=Infinity; quantity demanded/supplied falls to 0 when price changes

40
Q

Perfectly Price Inelastic Good

A

PED/PES=0; quantity demanded/supplied does not change when price changes

41
Q

Positive Externalities of Consumption

A

Where the social benefits of consuming a good are larger than the private benefits of consuming that good

42
Q

Positive Statement

A

Objective statements which can be tested with factual evidence to be proven or disproven

43
Q

Possibility Production Frontier (PPF)

A

Depicts the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and
efficiently employed

44
Q

Price Elasticity of Demand (PED)

A

The responsiveness of demand to a change in price
%change in QD divided by
%change in P

45
Q

Price Elasticity of Supply (PES)

A

The responsive of supply to a change in price
%change in QD divided by
%change in P

46
Q

Price Mechanism

A

The system of resource allocation based on the free market movement of prices, determined by the demand and supply curves

47
Q

Private Cost/Benefit

A

The cost/benefit to the individual participating in the economic activity

48
Q

Private Goods

A

Goods that are rivalry and excludable

49
Q

Producer Surplus

A

The difference between the price the producer is willing to charge and the price they actually charge

50
Q

Public Goods

A

Goods that are non-excludable and non-rivalry

51
Q

Rationality

A

Decision-making that leads to economic agents maximising their utility

52
Q

Regulation

A

Laws to address market failure and promote competition between firms

53
Q

Relatively Price Elastic Good

A

When PED/PES>1; demand/supply is relatively responsive to a change in price so a small change in price leads to a large change in quantity demanded/supplied

54
Q

Relatively Price Inelastic Good

A

When PED/PES<1; demand/supply is relatively unresponsive to a change in price so a large change in price leads to a large change in quantity demanded/supplied

55
Q

Renewable Resources

A

Resources which can be replenished, so the stock of resources can be maintained over a period of time

56
Q

Scarcity

A

The shortage of resources in relation to the quantity of human wants

57
Q

Social Cost/Benefit

A

The cost/benefit to society as a whole due to the economic activity

58
Q

Social Optimum Position

A

Where social costs equals social benefits; the amount which should be produced/consumed in order to maximise social welfare

59
Q

Specialisation

A

The production of a limited range of goods by a
company/country/individual so they aren’t self-sufficient and have to trade with others

60
Q

Specific Tax

A

A tax imposed on a good where the value of the tax is dependent on the quantity that is bought

61
Q

State Provision of Goods

A

Through taxation, the government provides public goods or merit goods which are underprovided in the free market

62
Q

Subsidy

A

Government payments to a producer to lower their costs of production and encourage them to produce more

63
Q

Substitutes

A

Positive XED; if good B becomes more expensive, demand for good A rises

64
Q

Symmetric Information

A

Where buyers and sellers both have access to the same information

65
Q

Trade Pollution Permits

A

Licenses which allow businesses to pollute up to a certain amount. The government controls the number of licenses and so can control
the amount of pollution. Businesses are allowed to sell and buy the permits which means there may be incentive to reduce the amount they pollute

66
Q

Unitary Price Elastic Good

A

When PED/PES=1; a change in price leads to a change in output by the same proportion

67
Q

Utility

A

The satisfaction derived from consuming a good

68
Q

Weakness at Computation

A

A cause of irrational behaviour; when consumers are bad at making calculations, estimating probabilities and working out future benefits/costs

69
Q

Adverse Selection

A

A situation where a person is more likely to take out insurance

70
Q

Allocative Efficiency

A

Achieved when society is producing an appropriate bundle of goods relative to consumer preferences

71
Q

Bounded Rationality

A

A situation in which people’s ability to take rational decisions is limited by a lack of information or an inability to interpret the information that is available

72
Q

Cartel

A

An agreement between firms in a market on price and output with the intention of maximising their joint profits

73
Q

Competitive Market

A

A market in which individual firms cannot influence the price of the good or service they are selling, because of competition from other firms

74
Q

Complements

A

Two goods are said to be complements if an increase in the price of one good causes the demand for the other good to fall

75
Q

Diminishing Marginal Utility

A

The situation where an individual gains less additional utility from consuming a product, the more of it is consumed

76
Q

Herding

A

Where people take decisions based on the actions of others, rather than on a rational evaluation of the situation they face

77
Q

Internalising an Externality

A

An attempt to deal with an externality by bringing an external cost or benefit into the price system

78
Q

Law of Demand

A

A law that states that there is an inverse relationship between Qd and the P of a good or service, ceteris paribus

79
Q

Marginal Cost

A

The cost of producing an additional unit of output

80
Q

Marginal Social Benefit (MSB)

A

The additional benefit that society gains from consuming an extra unit of a good

81
Q

Marginal Social Cost

A

The cost to society of producing an extra unit of a good

82
Q

Moral Hazard

A

A situation in which a person who has taken out insurance is prone to taking more risk

83
Q

Nudge Theory

A

Analysis that suggests that people’s behaviour can be influenced by making desirable decisions easy to make

84
Q

Polluter Pays Principle

A

An argument that a firm causing pollution should be charged the full external cost that they inflict on society

85
Q

Price Signal

A

Where the price of a good carries information to producers or consumers that guides the market towards equilibrium and assists in resource allocation

86
Q

Prohibition

A

An attempt to prevent the consumption of a good by declaring it illegal

87
Q

Value Judgement

A

A statement based on your opinion or beliefs, rather than on facts

Economics A-Level (10 decks)

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